You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should?

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Business

Yazmin

3 September, 05:52

You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should?

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Answers (1)

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Jensen · Answer 1

d. borrow $375,000

Explanation:

Given that

Amount available to invest = $500,000

Risk free rate = 8%

Return on the risky portfolio = 16%

Now the computation is shown below:

The interest rate should be

Interest amount on borrowings = $375,000 * 8% = $30,000

So, the total amount available to invest is

= $500,000 + $375,000

= $875,000

Now the total inflow is

= $140,000 - $30,000

= $110,000

The $140,000 is come from

= $875,000 * 16%

So the 22% is come from

= $110,000 : $500,000